Poker face

​I was once told that there are only two options for a report with unpleasant messages. You have to spice it up with either sex or gambling. We went for the latter and named our newest study “High Stakes Game: Payment Behavior, Cash Piles and Major Insolvencies”. After all, an Economic Outlook report can still be considered PG-rated. 


The news are not great. 

The economic acceleration does come with disagreeable surprises. Turnovers are growing but so are input costs and the jaw effect on companies can be important. While credit is still cheap, the time has come to wean the private sector off abundant liquidity. And of course, when it comes to political risk, all bets are off.

From payment behavior to cash piles to major insolvencies, companies will have to gamble a little if they want to break the bank this year yet you should never roll the dice when it comes to payment risk.


First, payment behaviors continue to be tense: 1 out of 4 companies worldwide are paid after 88 days. In China, for example, days sales outstanding (DSO) has climbed to a nine-year high of 89 days in 2016. Upstream industrial sectors (Aeronautic, Machinery, Chemicals, Construction or Information and Communication Technology) are faced with the recovery curse: they tend to go for broke when growth looms ahead as they jeopardize the financing of their working capital to have a seat at the recovery table.

Second, non-financial corporations are sitting on a staggering 7 trillion USD of cash​ on their balance sheets, up 34% compared to 2010 and now representing 10% of global GDP, that is to say twice as much as before the crisis. This precautionary saving pile is either good news (because there is so much to invest) or bad news: there is not much to invest in to get returns. The biggest cash pile now is with Asian companies and the tech industry is now ahead of oil and gas and automotive when it comes to compulsive hoarding. Nobody wants to let the chips fall where they may when it comes to investing shareholders’ money.

Last, while the overall number of insolvencies is expected to stabilize over the next two years, major insolvencies (companies exceeding 50 million euros of turnover) went up by 68% and the cost by 34% to 19 billion euros of cumulative turnover disappearing into thin air (also scroll down to see infographic below). The United States is the most affected with 8 of the top 20 failures in the first quarter; and sector wise, services and retail are suffering the most as digitalization had them make bets in a burning house.

Not all companies have an ace up their sleeve. So they all have to hedge their bets to make the best out of the renewed momentum, especially in Europe. While they put their cards on the table, company leaders will have to keep a poker face. Nobody wants to think they are playing Russian roulette.


Ludovic Subran 

Chief Economist 

Euler Hermes

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